What Is Spread?

Here's how it works:

1) Bid Price: The price at which the market (or your broker) will buy a specific currency pair from you.

2) Ask Price: The price at which the market (or your broker) will sell a specific currency pair to you.

The spread is the difference between the bid and ask prices. It represents the broker's profit for facilitating the trade. In other words, when you open a trade, you start with a small loss equal to the spread. To make a profit, the market price must move in your favor by at least the amount of the spread.

For example, if the EUR/USD currency pair has a bid price of 1.1200 and an ask price of 1.1205, the spread is 5 pips.

A narrow spread is generally preferred by traders because it means they incur lower transaction costs. In contrast, a wider spread can make it more challenging for a trade to become profitable, as the market must move a greater distance in the trader's favor to cover the spread.

It's important for traders to be aware of spreads and other transaction costs when engaging in forex trading, as these costs can impact overall profitability. Different brokers may offer different spreads, and they can also vary depending on market conditions.